Upm – the Biofore Company

UPM – THE BIOFORE COMPANY

Nordea Forest Products & Paper Seminar 2015 Jussi Pesonen President and CEO Contents

• Q1 2015 results

• UPM in transformation

• Capital allocation

• Summary

2 | © UPM Q1 2015 RESULTS Q1 2015 – good profitability continued

Q1 2015 vs. Q1 2014: Sales ROE (* EUR 2,486m 0% 8.1% +0.4pp EBITDA Operating cash flow EUR 325m +2m EUR 108m -156m Operating profit (* Net debt EUR 204m +8m EUR 2,419m -358m

Profit before tax (* Net debt / EBITDA EUR 182m +6m 1.8x -0.5x EPS (* Operating cash flow / share, 12 month EUR 0.29 +0.02 EUR 2.03 +0.34

4 | © UPM (* excluding special items Q1 2015 – good profitability continued

EURm EBITDA in Q1/15 vs. Q1/14 450 Operating profit excl. special items 400 increased to EUR 204m (196m) Currency, 323 325 350 net 13.0% impact 13.1% + Profit improvement actions and Variable costs 300 favourable currencies, Fixed moderated by hedging 250 costs Prices − Publication paper prices, Deliveries 200 paper deliveries in Europe and

150 electricity sales prices

100 Good performance in Biorefining, 50 Plywood, Raflatac and Paper Asia

0 UPM is well positioned for earnings EBITDA EBITDA Q1/14 Q1/15 growth, outlook for 2015 unchanged 5 | © UPM UPM IN TRANSFORMATION UPM in transformation

Business 2003: 2008: 2014: portfolio, integrated towards market- six separate sales paper company driven businesses businesses 100 % 100 % 100 %

80 % 80 % 80 % Paper ENA Sold units Sold units 60 % 60 % 60 % Plywood Paper Paper Energy Plywood Plywood 40 % 40 % 40 % Paper Asia Raflatac Raflatac Raflatac Sawmilling Sawmilling 20 % 20 % 20 % Biorefining

0 % 0 % 0 % 2003 2008 2014 Sales EUR 9.8bn EUR 9.5bn EUR 9.9bn EBIT (* EUR 429m EUR 513m EUR 847m Net debt EUR 4.9bn EUR 4.3bn EUR 2.4bn Market cap EUR 7.9bn EUR 4.7bn EUR 7.3bn Personnel 34,500 25,000 20,400 7 | © UPM *) excluding special items UPM businesses portfolio in figures

EBITDA 2014 Capital employed, Dec 2014 EUR 1,287m EUR 10.9bn

UPM Plywood UPM Other operations UPM Biorefining UPM Biorefining Plywood UPM Paper ENA

UPM Paper ENA

UPM UPM UPM UPM Energy Paper Asia Paper Asia Energy UPM UPM Raflatac Raflatac 8 | © UPM Four business areas achieved their long-term return targets in 2014

UPM UPM UPM UPM UPM UPM Energy Biorefining Paper Asia Paper ENA Plywood Raflatac 20 20 20 20 20 20 ROCE % (* ROCE % ROCE % CF/CE % ROCE % ROCE % 18 18 18 18 18 18 16 16 16 16 16 16 14 14 14 14 14 14 12 12 12 12 12 12 10 10 10 10 10 10 8 8 8 8 8 8 6 6 6 6 6 6 4 4 4 4 4 4 2 2 2 2 2 2 0 0 0 0 0 0 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014

(* shareholdings in UPM Energy Long-term return target valued at fair value

9 | © UPM UPM strategy in action

Biofuels: Lappeenranta 2. EBITDA target biorefinery for growth projects Pulp: 10% capacity increase EUR 200m Plywood: Otepää expansion UPM 3. Business portfolio Biorefining development and UPM Plywood value creation 1. Profit UPM 4. New businesses improvement Paper UPM programme Asia BIOFUELS Paper Labelling materials: ENA EUR 150m Changshu expansion BIOCHEMICALS Self-adhesive labels: expansion in growth markets and in higher BIOCOMPOSITES UPM value added products Energy UPM Raflatac

10 | © UPM 1. PROFITABILITY IMPROVEMENT Profit improvement programme targeting EUR 150 million of fixed and variable cost savings

EUR million 200 Full annualised EUR 150 million impact of the programme is expected to realise by the end of 2015, as compared with Q3/14 150

Other fixed and 100 variable cost 31% savings realised in Q1 2015 50 Fixed cost savings from planned closures (* 0 Q314 Q414 Q115 Q215 Q315 Q415 Q116 (* 800,000 tonnes of publication paper capacity in Europe: three paper machines were closed in Q1/15, employee consultation process is 12 | © UPM proceeding regarding one machine 2. FOCUSED ORGANIC GROWTH PROJECTS Lappeenranta biorefinery in commercial production

• World’s first biorefinery producing 120 million litres of wood based advanced renewable diesel

• Commercial production started in January 2015, ramp up still in early stage

• Production technology works as planned and the high-quality product fulfils customer specifications

• Distribution has started through Finnish service stations St1 and ABC in May 2015 14 | © UPM 10% increase in pulp production capacity

• Pietarsaari pulp mill modernisation and 70,000 tonnes capacity expansion completed in June 2014

• Fray Bentos pulp mill production permit allows a 100,000 tonnes increase in production. Minor investments were carried out in Q4 2014

• Kymi pulp mill 170,000 tonnes capacity expansion proceeding well, start-up by the end of 2015

15 | © UPM Advancing in growth markets

• Investment in labelling materials and woodfree speciality papers at the UPM Changshu mill in China proceeding well. Capacity 360,000 tonnes, start-up by the end of 2015

• 50% increase in self-adhesive labelstock coating capacity in APAC, start-up in Q2 2015

• Expansion of filmic labelstock production in Nowa Wies, Poland, start-up in Q2 2015

16 | © UPM UPM invests in the top performing plywood business by expanding the Otepää mill

• UPM will almost double the production at the Otepää plywood mill in Estonia to 90,000 m3

• Investment includes a new bio power plant at the mill

• The total investment of EUR 40 million will be completed by the end of 2016

• Enables serving the growing demand in key customer industries

17 | © UPM 3. BUSINESS PORTFOLIO DEVELOPMENT AND VALUE CREATION Portfolio development and value creation

• Performance: targeting top performance in each business

• Grow: focused high-return growth investments and synergistic M&A

• Simplify: best value realisation for UPM

• Consolidation in European paper market, without increasing capital

19 | © UPM 4. NEW BUSINESS DEVELOPMENT New businesses based on UPM’s development work

Annual patent filings 2009–2014 • Biofuels: renewable diesel 400 suitable for all diesel engines 350 300

250

• Biochemicals: renewable 200 drop-in alternatives for oil- based chemicals 150 100

50 • Biocomposites: for injection moulding to replace oil-based 0 raw materials

21 | © UPM CAPITAL ALLOCATION Strengths of UPM’s model

Attractive dividend

Strong cash flow Focused investments

Industry-leading Top performance balance sheet

23 | © UPM Strong cash flow

EUR million Cash flow 1 400 1,241 Cash flow 1 200 after investing 1,085 activities 1 000

800

600

400 Operating cash flow 200

0 2008 2009 2010 2011 2012 2013 2014 Q1/15 LTM

24 | © UPM Dividend policy based on operating cash flow

EUR per share Dividend 0,80 Dividend policy 0.70 0,70 • UPM aims to pay an attractive 0.60 0.60 0.60 dividend, 30-40% of operating 0,60 0.55 cash flow per share 0,50 0.45 0.40 0,40 Dividend for 2014

0,30 • EUR 0.70 (0.60) per share • 30% of 2014 operating cash 0,20 flow per share 0,10

0,00 2008 2009 2010 2011 2012 2013 2014 25 | © UPM Low investment needs in existing assets allow growth projects with modest total capex

EUR million Capital expenditure Estimate 1 200

Myllykoski 1 000 acquisition

Depreciation 800

Uruguay 600 acquisition

375 500 400 Strategic investments 329

200

Operational investments 0 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 26 | © UPM Net debt at record-low level

Net debt / EBITDA Net debt, EUR million (trailing 12 months) Net debt, EUR million Gearing % 5 000 4,5 5 000 90

4 500 4,0 4 500 80 Net debt / EBITDA Gearing 4 000 3,5 4 000 70

3 500 3,0 3 500 60

3 000 2,5 3 000 50 1.8 31 2 500 2,0 2 500 40

2 000 1,5 2 000 30 Net debt Net debt

1 500 1,0 1 500 20

2008 2009 2010 2011 2012 2013 2014 Q1/15 2008 2009 2010 2011 2012 2013 2014 Q1/15

27 | © UPM Summary

Good profitability continued in Q1 2015 • Profit improvement actions and currencies offset the market headwinds in UPM Paper ENA and UPM Energy

UPM is well positioned for earnings growth • Profit improvement programme has more than EUR 100m of further annualised impact to materialise by the end of 2015 • More than half of the growth capex has been spent, nearly all of the EUR 200m EBITDA impact is yet to come • Current exchange rates promise further tailwind

Strong cash flow and balance sheet • UPM is in a unique position to simultaneously distribute attractive dividend, implement growth projects and act on strategic opportunities

28 | © UPM

Key figures

EUR million Q1 Q1 Q4 2014 2015 2014 2014 Sales 2,486 2,481 2,531 9,868 EBITDA 325 323 334 1,306 % of sales 13.1 13.0 13.2 13.2 Operating profit (* 204 196 230 847 Profit before tax (* 182 176 216 774 Earnings per share, EUR (* 0.29 0.27 0.32 1.17 ROE, % (* 8.1 7.7 9.2 8.3 Operating cash flow 108 264 462 1,241 Net debt 2,419 2,777 2,401 2,401 Gearing, % 31 37 32 32 (* excluding special items

30 | © UPM Operating profit *) by business area EURm UPM Biorefining % of sales EURm UPM Energy % of sales EURm UPM Raflatac % of sales 120 24 100 50 50 10

100 20 80 40 40 8 80 16 60 30 30 6 60 12 40 20 20 4 40 8 20 4 20 10 10 2 0 0 0 0 0 0 Q1Q2Q3Q4Q1Q2Q3Q4Q1 Q1Q2Q3Q4Q1Q2Q3Q4Q1 Q1Q2Q3Q4Q1Q2Q3Q4Q1 13 13 13 13 14 14 14 14 15 13 13 13 13 14 14 14 14 15 13 13 13 13 14 14 14 14 15

EURm UPM Paper Asia % of sales EURm UPM Paper ENA % of sales EURm UPM Plywood % of sales 50 12,5 75 6 25 20

40 10 50 4 20 16

30 7,5 25 2 15 12

20 5 0 0 10 8

10 2,5 -25 -2 5 4

0 0 -50 -4 0 0 Q1Q2Q3Q4Q1Q2Q3Q4Q1 Q1Q2Q3Q4Q1Q2Q3Q4Q1 Q1Q2Q3Q4Q1Q2Q3Q4Q1 13 13 13 13 14 14 14 14 15 13 13 13 13 14 14 14 14 15 13 13 13 13 14 14 14 14 15 31 | © UPM *) excluding special items Currency exposure

• Key currency exposures USD, GBP and JPY

• Policy to hedge an average of 50% of the estimated net currency cash flow for the next 12 months

Estimated annual foreign currency net cash flow, before hedging USD GBP JPY Others EURm 810 500 160 170

Q1 NBSK pulp price decreased 3% from Q4 Pulp inventories Q1 BHKP pulp price increased 2% from Q4 Days of USD/tonne supply 1 100 65

60 1 000 Hardwood NBSK 55 900 inventories 50 800 45 BHKP 700 40

35 600 30 500 25 400 Softwood 20 inventories 300 15 2008 2009 2010 2011 2012 2013 2014 2015 2008 2009 2010 2011 2012 2013 2014 2015

Source: FOEX Indexes Ltd. Source: PPPC World-20 statistics

EUR/MWh Finnish and Nordic electricity prices 80 80

70 70

60 60

50 50

40 40

30 30

20 20

10 10

0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Coal SRMC Front Year System Front Year Helsinki Front Year

Source: Reuters

EUR/t Price hardly covers the cash costs of marginal producers

Price

Cash cost of a marginal producer

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Sources: PPI, RISI, Pöyry

Euro zone composite leading indicator (Y/Y %) Paper demand growth (% trailing 3 month) 6,0 20

Euro zone composite 15 leading indicator 3,0 10

0,0 0

Graphic paper -5 demand growth -3,0 -10

-15

-6,0 -20